Fed’s Bernanke fuels a spike in the dollar

Bernanke’s prepared testimony on the economy and monetary policy provided no new indications that the Fed is “any closer to pulling the trigger” on a third round of quantitative easing, said Kathy Lien, managing director of FX strategy for BK Asset Management. “This sent the U.S. dollar soaring against all the major currencies because it means that while September is still in play, raising asset purchases in August is completely off the table.”

Additional QE is seen as a negative for the currency as it is considered akin to the creation of new money by the central bank.

“What investors wanted to hear were clear signals on the timing for QE3 and unfortunately Bernanke failed to deliver,” said Lien. “He reiterated that the Fed is prepared to ease further if necessary, but declined to mention specific steps which means the door is open but they are still not ready to walk through it.”

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